When an individual or a household has a take-home pay that either equals or falls short of their monthly expenses, they are living paycheck-to-paycheck. This typically happens if there is little to no discretionary income available or if excessive debts and spending cause bills not to be paid on time. This means that these households typically don’t have enough money for purchases that could improve their lives, including investing in the future.
If you fit this description, it’s not too late to change your financial planning to enrich your life. Here are the six best things you can do to stop living paycheck to paycheck:
Live on a Budget
Many people do not have a good handle on what they spend their money on unless it all goes to bills. In fact, many are spending quite a bit on things such as streaming services that require a decent chunk of money each month. Often, money goes out the door on things that are a “want,” but it gets lumped together with the required monthly bills.
Creating a budget is vital to see where money is going out the door and where you can save cash to invest in your future. Creating the budget is only half the battle, however. If you’re going to shed only being able to make it to your next paycheck, it’s essential to live by the budget you create. It should be a hard and fast rule of where your money goes that cannot be deviated from. Anyone trying to change their financial situation should start with creating and living by a budget.
Make a Debt Plan
Many households are unable to get out of their financial situation because of the amount of debt they have incurred. This could be from several different things, typically because of credit card debt. Most people with a substantial amount of credit card debt will never be able to pay off their debt when only paying the minimum amounts required.
To get your finances on track, you should consider creating a debt plan so you can pay off anything that might be an extra or excessive cost every month. Having multiple credit cards, you’re making payments on can be the difference between drowning in debt and financial independence. Your plan should work with your budget to determine how much extra you can pay on your debt each month to get it paid off, freeing up that amount of money to invest or spend on things to improve your overall quality of life.
Find an Additional Income
The most straightforward way to stop living paycheck to paycheck is to earn more money. This could be through getting a promotion at work, finding a new job where you’re paid a higher salary, or accessing additional income streams through a side hustle or second job. Multiple income sources are the best way to make more than you need every month, and they protect you if you happen to lose one at any time in the future.
The mistake many people make when finding additional income is that they don’t live on what they previously made. If you increase your spending as your income increases, you’ll continue your cycle of living paycheck to paycheck with more things or experiences. All your additional income from a new source should go towards savings, paying off debt, or investing in the future.
Create an Emergency Fund
Not having an emergency fund is a significant reason many people have to take on debt, costing them a valuable amount in their budget for the foreseeable future. An emergency fund gives you enough money to devote to unexpected expenses that often come up from time to time as part of life. For example, when you have to go to the hospital to get stitches because of an accident or when your air conditioner breaks, and you have to fix it or get a new one.
An emergency fund should be money you keep separate from your regular bank account, possibly in a savings account, so that you don’t unintentionally access those funds. You should make contributions to the fund every month as part of your budget and only pull money out to pay for unexpected expenses that would cause you to take on debt without using that money.
Save for Large Purchases
Many people get into financial stress because they aren’t patient enough to buy the things they want. For example, they agree to pay an extra point or two on their mortgage to pay less as a down payment, or they buy a refrigerator on credit instead of saving money before buying.
When making a large purchase, it’s always best to pay cash. That means saving for however long you need to before making that buying decision. This requires patience but will save you thousands of dollars over several years and help free up more cash for your other needs every month. Keeping this portion of your money in a separate savings account can also help you earn more over time.
Create a Weekly Meal Plan
Another expense that adds up quickly for most people is how much they spend on food. Eating out, in particular, is an expense that becomes easy since it doesn’t take time to prepare beforehand. However, eating out can cost quite a bit more per night than planning ahead and making sure you have something to eat for each meal. The problem is that it takes time to figure out what you’re going to eat and then more time to prepare the meal. Time is not something that people have a lot of extra.
Instead, planning ahead by creating a weekly meal plan can help you solve all of these problems. You can plan out meals, so you know what to buy when you go grocery shopping, and then you can plan out your week by picking what you’ll eat for each meal. This will help you save money, and you’ll know what you need to do to prepare for your meals each day in advance. The tough decision-making will already be done when you go to make your meal.
The Bottom Line
Regardless of your situation, there is a way for you to stop living paycheck to paycheck. It will take time, dedication, and potentially a little sacrifice to do it, though. By planning and living on a budget, you’ll be able to find extra money to save or invest, which can make all the difference as you prepare your finances for the future. The important thing is to take action today and start making your money work better for you. Looking for some guidance or help getting your finances back on track? Let DECU help! Check out our Money Manager tool to set up budgeting, an expense tracker and more.